An insight into Umeme concession and work

By Vision Reporter

Added 16th August 2007 03:00 AM

MANY issues have been raised regarding the concession agreement between the Government and Umeme. Umeme would like to clarify these issues. On March 1, 2005, Umeme Limited assumed control of the electricity distribution network in Uganda.

By Paul Mare

MANY issues have been raised regarding the concession agreement between the Government and Umeme. Umeme would like to clarify these issues. On March 1, 2005, Umeme Limited assumed control of the electricity distribution network in Uganda.

Umeme are leasing the current network from UEDCL under the concession agreement and will operate, maintain and manage the business for the next 20 years.

The agreements provided for:

A transaction fee of $1.4m, which was paid to the Government on the signing.

Monthly lease payments to UEDCL were initially at $1.3m and are now at $1.6m.

The Government requested Umeme that certain sensitive and strategic supplies which include the Police, Prisons, Army and hospitals, be exempt from disconnection in the national interest. It is these payments which have on occasion resulted in the Government and Umeme agreeing on off sets on power consumed using the monthly lease payments to UEDCL which is provided for in the concession agreement.
Umeme has paid all lease payments to UEDCL (over $39m to date).

Umeme is charged with making improvements to the network, which network has had limited investment in the period before and leading up to the concession. With the exception of an ADB loan which covered about 15% of the network, the emphasis had been on operations and maintenance.

On the transfer date from UEDCL to Umeme (March 1, 2005), the concession began with an initial 18 month period (the â€œInitial Periodâ€) and an obligation for Umeme to invest $5m into the business in that period.

The key concession agreements (from a customer service perspective) also provided for:

Investment of a further $60m over the next five years ($65m in total) on network reliability improvements, with the obligation to start spending at the end of the 18 months.

60,000 new connections in the first five years of the concession.

Umemeâ€™s capital investment in the first 10 months of operation, from March 2005 to December 2005, was $ 5.3m ($1.6m inclusive for new customer connections). Umeme spent a further $4.9m to December 2006 ($1.3m inclusive for new customer connection), making a total of $10.2m (i.e $7.3m net investment, excluding new connection costs totaling to $2.9m). This was against the contractual commitment of $5m in the Initial Period (18 months, as extended).

To date, Umeme has spent a total of $16.5m, in investment in the network and effecting new connections. In addition to the above, Umeme has utilised World Bank materials, valued at about $4.8m to refurbish the network and to effect new connections.

The Company has investment plans in place and implementation will be in line with the shareholders capital injection obligations. Umemeâ€™s investment plan for the first five years is expected to hit the $100m mark; well above the contracted obligated sum of $65m.

It should also be noted that Umeme has connected over 43,000 new customers in the first two years against a target 60,000 new customers in first five years of the concession.

Prior to the signing of the concession, the World Bank agreed to advance $11m to UEDCL in order for them to procure materials for use by Umeme. This means that the impact of the tariff adjustment in 2005 was reduced by this amount.

The World Bank material usage has been successfully audited by our own auditors Ernst & Young and ERA for 2005 and 2006. UEDCL also requested for a separate audit which is not yet complete. It is important to lay emphasis on the fact that Umeme is not receiving cash but materials from the World Bank through UEDCL.